Dayforce, Inc.

Good afternoon, and thank you for joining. Welcome to Ceridian's second quarter 2023 earnings conference call. I'm Matt Wells, head of investor relations. And on the call today, we have our co-CEOs, David Osip and Lee Turner, and our CFO, Noemi Hewland. As a reminder, all participants are in a listen-only mode, and a question and answer session will follow our opening remarks. Now, before I hand the call over to David, I want to remind everyone that our commentary may include forward-looking statements. These statements are subject to risks and uncertainties that could cause Ceridian's results to differ materially from historical experience or present expectation. A description of some of these risks and uncertainties can be found in the reports we file with the Securities and Exchange Commission, such as the cautionary statements in our filings. Additionally, over the course of this call, we will reference non-GAAP measures to describe our performance. Please review our earnings press release and filings with the SEC for our rationale behind the use of non-GAAP measures and for a full reconciliation of these GAAP to non-GAAP metrics. These documents, in addition to a replay of this call, will be available on the Ceridian Investor Relations website. And with that, I'd like to turn the call over to David.

thank you matt and thank you all for joining us today on our second quarter earnings call today i'll discuss our strong second quarter results continued commitment to innovation in the hcm space and provide an update on our raised folio outlook lee will provide more information on sales wins successful customer implementations and continued scale across our organization And Noemi will add detail to our quarterly performance and updated full-year outlook. Before I dig into our financials, I'd like to congratulate the team, our global workforce, our customer base, and our partner network. There is momentum across the organization and our HCM ecosystem, and these results are evidence of that. Now turning to our financial results. I'm pleased to report that we exceeded guidance across all revenue and profitability metrics in the second quarter. And we are pushing the full beat across all revenue and profitability metrics into our full year guidance raise. On a constant currency basis, dayforce recurring revenue grew 39%. And dayforce recurring revenue X float grew 28% year over year at constant currency. Turning to the bottom line metrics and cash flow, adjusted cloud recurring gross margins of 78.1% continue to expand by 177 basis points year over year. Adjusted EBITDA was 98.4 million or 27% of revenue and expanded meaningfully year over year by 640 basis points. This is a result of the revenue upside in the quarter and our continued focus on operational efficiencies adjusted operating income was 83 million or 23 percent of revenue and also benefited from these same trends and we had record operating cash flows of 82 million in the quarter cash flow has been an area of focus for the organization and so i'm happy to announce continued progress along this metric as i mentioned Based on our first half performance, we are raising both our growth and profitability outlook for 2023. As the results show, we have and are well positioned to execute in the current macro environment and are confident that our focus on durable and profitable growth will lead to continued success and value creation. Our results are also the outcome of our commitment and our ability to continually innovate and deliver real quantifiable value to our customers. This has allowed us to win new customers while at the same time increase product density across both new and existing customers. As Lee will speak to, year to date, we've attached the full suite to 50% of new sales. This is validation of both our sales and product strategy. We're seeing healthy adoption of our talent solution, and the new Dayforce Hub experience continues to resonate with customers. Dayforce Wallet continues to see healthy adoption across our new and existing customer base. We are attaching the solution to 80% of new sales, And we now have 1,640 customers sold and over 1,000 customers live on the wallet. And we expect to cross $2 billion of loads within a few weeks. And last quarter, Joe spoke to our AI roadmap. I'm pleased to announce continued progress on that front. We are advancing our usage of generative AI internally as well within our products. In our customer support organization, our generative AI support tool is now answering over 85% of directed questions, which is up over 10% from last quarter. This is on pace to provide a 10% gain in overall productivity in the customer support organization. All of this is a byproduct of training the model against implementation guides, knowledge bases, and other internal documentation that is refined against customer questions and responses. Across the Dayforce platform, we see countless opportunities to add generative AI to up-level our analytics and augment our already intelligent solutions for customers. Joe and his team are thoughtful in their approach here. and are excited to showcase what's next at our Insights Conference later this year. And finally, I'd like to discuss global and enterprise. The Dayforce platform was built to address the global market from day one. And part of our competitive advantage is offering native, core HR, talent, workforce management, and payroll solutions to almost every major geography. On this front, we are well ahead of our competitors. In the quarter, we developed an extendable formula-based global payroll engine that allows for rapid adoption of new native dayforce global payroll for most countries across the Middle East and Africa. And we continue to progress with our customers on our native payroll expansion into Germany. Our charter customers are now running payroll in-country and we are progressing with the German ITSG certification board. We expect German payroll to be generally available in Q1 of next year. And on the enterprise front, we brought live 279 NetDaples customers in the first half of this year. Within that cohort of customers, our go-lives within the segment of customers of over 6,000 employees more than doubled year over year. And at the same time, year to date, average deal size has increased by 17%. Another incremental data point validating our ability to sell a broader solution set, expand globally, and to shift up market. In summary, Ceridian remains positioned as an innovator and share taker in the global HDA market. And before I turn the call over to Lee, I'd like to welcome customers, prospects, and partners to our flagship insights conference taking place October the 2nd to the 5th in Las Vegas. We are looking forward to another record-breaking year. One last item to discuss. I'd like to share that Naomi has decided to pursue outside opportunities. Naomi will be with us up until the end of the year and will help us onboard her successor. I'd just like to say thank you to her for the last three years. With that, I'd like to turn the call over to Lee.

Thank you, David. Echoing your comments, I'd like to underscore the strong momentum we are seeing throughout the entire business and the reason we're leaning into innovation across the Dayforce platform. Propelling both growth and innovation is this once in a generation moment driven by three intersecting opportunities that we are uniquely primed to take advantage of and which customers are reaching to us to help them through. The first is a complex macro environment. We help customers identify opportunities for productivity and efficiency which they can then use to create real return and real value. Second, Every organization in the world is navigating the mandate for a more connected workforce. Given the new social contract between employee and employer in this boundless world of work and day force is a single global full suite people platform which supports both the employee and the employer in this new world of work. Third, In this era of AI, jobs will be transformed and work will get done differently. This is a historic moment. It really is. And we are being trusted to help our customers drive workforce transformation, not renovation in the era of AI. And if we continue to ride the wave of these three intersecting trends, which we have to date, We can be the people platform of this generation because the absolute toughest issue that companies face today is that the work is agile and flexible and efficiencies drive growth. And other HR technologies are not known for their scale and flexibility. Moving to the quarter. As of Q2, we have nearly 6,300 customers on the Dayforce platform with more and more customers adopting our full suite. In fact, globally, 50% of new sales are full suite in 2023. That brings our full suite total customer base to 40%. We are a full suite company. Building on this motion, Our add-on sales back to the base continue to trend ahead of expectations and represent approximately 30% of total sales year to date. As David touched on earlier, this validates our ability to land and expand and to deliver maximum value to our customers. Driving this momentum has been the realignment of our revenue and customer experience organizations under Steve Holdridge, which we announced in Q1. and we continue to see both results and efficiencies from that decision. In this quarter, we announced the appointment of Sam Algarat as Chief Revenue Officer reporting to Steve. While we were not planning to hire for this role so quickly, Sam was a talent that we could not pass up given his 30 years of experience as a global enterprise SaaS leader. He is a true operator who understands scale and durable growth, especially through the build out of incremental revenue streams and sustainable ecosystems. His joining is yet another indicator of our ability to attract truly differentiated talent globally, and it's a testament to the fact that we are doing something very, very special here. Given the impact he's had already, we are so bullish about his future in this company and the benefit will be felt by our people and our customers. Now, let me get into a few notable wins and go lives. In Q2, new customer wins included. a european aviation services company with 55 000 global employees which selected dayforce to support its people operations in 35 countries a leading professional services company with 33 000 employees in nine countries chose ceridian as its trusted partner for global managed payroll A US consumer goods manufacturer with 35,000 employees globally added Europe, the Middle East and Africa to its partnership with Ceridian after choosing Ceridian for its Latin America and Asia Pacific operations in Q4 of 2022. And a leading global jewelry company with 30,500 employees selected Dayforce to provide a single workforce management solution across 39 countries. Also notable organizations that we took live over the last quarter include a multinational DAX 30 chemical and consumer goods company with 60,000 employees globally is continuing its very successful implementation with Ceridian expanding its day first deployment to 20 countries and approximately 27,000 employees to date. A leading global pet care conglomerate with 30,000 employees launched AFORCE to its US and Canadian workforces to help standardize operations and reduce turnover. and a luxury automotive manufacturer piloted Dayforce HR and workforce management to a large group of their employees in Germany with plans to expand to its full German workforce of 10,000 as we move out of charter in early 2024. Also fueling the value our customers get from implementing Dayforce is the progress we are seeing in the partner ecosystem. It's really been phenomenal. In Q2, we announced the evolution of the Ceridian Partner Network to better align with our customer's journey by matching partners with customers at critical moments to drive continuous value. Within CPN, we saw Deloitte Australia, PWC UK, and RSM accelerate the growth of their Dayforce offerings. And we also joined the Ernst & Young Global Alliance Partner Program, bringing the transformational benefits of Dayforce together with EY's extensive array of services and industry insight. now turning to product q2 saw meaningful advances across four critical innovation areas for our customers experiences openness compliance and intelligence on the experience front we made our differentiated experience hub available globally and enhanced our people search capabilities On compliance, we continue to earn our placement as the absolute market leader with customer-driven features such as flex time pay and shift bidding. On openness, we're accelerating customers' ability to leverage our ecosystem and create more connected systems with innovations like Dayforce Integration Studio, which now has interoperability across our entire partner network. And last but far from least, we continue to deliver on empowering our customers with better intelligence, powered by AI, with the launch of predictive tools like Dayforce Career Explorer and the Burnout Dashboard available in Dayforce People Analytics. On the topic of AI, and as David noted, we're quite pleased with the progress we're making to integrate AI across our business Because getting this right really matters, and we are seizing the opportunity to make radical breakthroughs in delivering trustworthy innovation with great care. Of course, this includes our product roadmap with the use of tooling in areas like talent management and career pathing, as Joe spoke to last quarter. but also ensuring that our entire company is finding ways to lean into ai to drive efficiency and value we fully believe that ai innovation begins with our people we have set up a labs function focused solely on the iterative work required to drive workplace use cases enabled by ai In addition to creating plans to roll out AI training internally, ensuring that all of our employees, no matter their function, are AI literate. It is this continued investment in our people that we believe is a foundation for our market differentiation, as underscored by accolades in Q2, including being named one of Newsweek's top 100 most loved workplaces. Our employees' passion for our customer success is also super inspiring, as is their focus on furthering our commitment to ESG and to the communities in which we work. In Q2, we held our first ever Global Volunteer Month, which our people rallied behind as only Ceridian people can, and we were honored to be awarded as one of USA Today's America's Climate Leaders in 2023. We also have earned a AA ESG rating and placement in the leader category from MSCI for the second year in a row. In closing, this quarter showcases that we continue to fire on all cylinders. We lean into every single part of the business to ensure that we are progressing and primed to be the go-to partner for HR organizations in this absolutely critical moment of opportunity. In one of the many, many conversations I had with customers this quarter, one of them said it best by noting, you are the closest thing to the holy grail of modern HR technology that has ever existed. You are set up for generational growth. You are everything that we thought you were. I think there is no better moment than Insights this October to connect and to communicate and to celebrate with the Dayforce community on all the goodness that we have in store for their people and organizations. It truly is a brand new Dayforce. Now, before I hand it over to Noemi to close this out, I'd also like to offer my very deep gratitude for her leadership and counsel these past years. She has been a wonderful colleague and an even more dear friend, and she's helped us drive Ceridian through a tremendous stage of growth, and she will leave us more than ready for our next stage. Thank you, Noemi. I wish you absolutely all the best, and I'm going to turn it over to you to bring us home.